Question
In: Accounting
A machine acquired on January 4, 2009, at a cost of $425,000, has an estimated useful...
- A machine acquired on January 4, 2009, at a cost of $425,000, has an estimated useful life of nine years and an estimated residual value of $65,000. (10 points)
- What was the amount of depreciation for the years 2009, 2010, and 2011, using the straight-line method of depreciation?
- What was the book value of the machine on January 1, 2012?
- Assume that the machine was sold on January 9, 2012, for $290,000 journalize the entry to record the sale
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- Assume that the machine had been sold on January 9, for $310,000, journalize the entry to record the sale.
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Solutions
Expert Solution
Annual depreciation = [ cost of machine - scrap value ] / life time of machine in years
Annual depreciation = [ $ 425,000 - $ 65,000] / 9 = $ 40,000
$ 40,000 is the amount of depreciation in 2009, 2010 and 2011 using straight line method of depreciation.
Book value of machine on 1/1/ 2012 = Original cost of machine - Accumulated depreciation from 2009 to 2011
Accumulated depreciation for 2009 to 2011 = $ 40,000 X 3 = $ 120,000
Book value of machine on 1/1/2012 = $ 425,000 - ( $ 40,000 X 3)
Book value of machine on 1/1/2012 = $ 305,000
If machine was sold on 9th January 2012, then for 9 days in 2012 no depreciation to be changed further, because 9 days in a year is so nominal to calculate depreciation.
Journal entry for sale of machine for $ 290,000
| Date | Name of the accounts and explanation | Debit | Credit |
| January 9,2012 | Cash | $ 290,000 | |
| Accumulate depreciation | $ 120,000 | ||
| Loss on sale of machine | $ 15,000 | ||
| Machinery | $ 425,000 | ||
| ( Machinery sold at a loss) |
If machine with a carrying value of $ 305,000 sold at $ 290,000, then loss on sale of machine is [ $ 305,000 - $ 290,000] = $ 15,000
Journal entry for sale of machine for $ 310,000
| Date | Name of the accounts and explanation | Debit | Credit |
| January 9, 2012 | Cash | $ 310,000 | |
| Accumulated depreciation | $ 120,000 | ||
| Machinery | $ 425,000 | ||
| Gain on sale of machinery | $ 5,000 | ||
| ( Machinery sold at a gain) |
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